Reuters | Tue Jun 14, 2011
Exclusive: EU-Mercosur trade talks nearing stalemate
By Raymond Colitt
BRASILIA (Reuters) — Talks to create a massive free trade zone between Europe and South America are in danger of falling apart, hit by the euro zone debt crisis and differences over agricultural subsidies and other core issues.
Negotiators from the European Union and the four-nation trade bloc Mercosur, led by Brazil, have been trying for years to draw up a free-trade deal that would encompass 750 million people and trade worth $125 billion a year.
After a brief period of optimism following last year’s relaunch of talks, negotiators will miss their goal of reaching a deal by mid-2011. So many critical issues remain unresolved that a deal this year now looks all but impossible, officials from both blocs say.
"Progress has slowed. There’s a real risk of a stalemate," a Brazilian government official close to the talks said.
The reasons for the deadlock range from relatively recent problems like the European debt crisis to deeper, long-term issues — such as EU farm subsidies and squabbles within Mercosur — that first caused talks to be suspended in 2005.
The stalemate raises questions about whether continued strains from the 2008-09 global financial crisis have created a prohibitively difficult climate for free trade talks globally.
Among the still-unresolved issues:
The EU wants more market access for its manufactured products, while Mercosur — which groups Brazil, Argentina, Uruguay and Paraguay — wants more concessions on EU farm subsidies and tariff barriers.
Yet, with unemployment rates at record highs in several EU countries, negotiators say they are facing more pressure at home to keep tariff barriers and farm subsidies in place.
"Sometimes there are protectionist tendencies," said Ana Paula Zacarias, head of the EU delegation in Brazil, when asked how the Euro zone crisis was affecting the talks.
In Argentina, the government is wary of making any major economic policy changes ahead of elections in October and has requested that no proposals be made on tariffs and market access until then, an EU source close to the talks said.
A spokesperson at Argentine’s foreign ministry did not immediately respond to requests for comment.
In Brazil, an overvalued currency leading to a flood of cheap imports has triggered calls for protectionist measures by industry leaders and put negotiators on guard.
"Any opening is more difficult with this exchange rate. The orders are ’negotiate but with much care’," the Brazilian official said.
PROPERTY RIGHTS ALSO A PROBLEM
There are also obstacles on issues from intellectual property rights to government procurement and the protection of products associated with specific geographical regions.
Mercosur has been hesitant to accept EU proposals for strict patent and copyright laws that go beyond TRIPS, a 1994 agreement under the World Trade Organization on intellectual property rights. Brazil in particular is concerned this could undermine its ability to develop generic drugs or respond to national health emergencies by breaking patents.
"It’s a difficult and complex process," said Zacarias.
Some analysts suggest the EU could settle on the TRIPs agreement if Mercosur agreed to recognize geographical indications, helping Europe protect geographically-denominated consumer goods such as French Champagne and Italian Parma ham from cheaper Chilean and Argentine competitors.
"This is a red line for the EU. Without it, any agreement will be hard to sell at home," an EU source said.
Both sides hope they can make some progress but are aware that time is not on their side. In May next year, France — the key proponent of farm aid in the EU — has a presidential election, making it even more unlikely to back an ambitious accord exposing French farmers to international competition.
"It’s hard to identify a real window of opportunity over the next year," the EU source said.
(Editing by Kieran Murray)